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SentinelOne’s Transfer Pricing Under Scrutiny
Cybersecurity firm is negotiating pricing agreements that may not protect it from future back tax bills.
June 2, 2022
In planning its international expansion, SentinelOne (S), a cybersecurity firm, says it’s negotiating transfer pricing arrangements in multiple countries. The company recently began negotiating Advance Pricing Agreements (APAs) with the United States and Israeli governments which would cover various intercompany transactions.

If greenlighted, SentinelOne says the APAs will provide it with a more predictable future business operating model and prevent tax authorities from making transfer pricing adjustments that can result in large tax bills and lengthy legal battles.

Other firms would likely counsel SentinelOne to be less confident the agreements will be upheld.

For instance, Coca-Cola (KO) claims the IRS recently reneged on a previously agreed upon transfer pricing methodology that would exempt the company from penalties going forward. The IRS now says Coca-Cola owes $13 billion in back tax and penalties. Interest on the bill is more than $250 million a quarter.

Coca-Cola is one of several companies in the midst of transfer pricing disputes with the IRS:

—Facebook (META) expects a $9.7 billion transfer pricing tax bill
—Cirrus Logic (CRUS) is fighting a $170 million transfer pricing tax bill
—Edwards Lifesciences (EW) is disputing a $180 million transfer pricing tax bill
—Microchip Technology (MCHP) refuses to disclose its transfer pricing tax liability

Two years ago, the IRS dropped a not so subtle hint that increased transfer pricing scrutiny was on the horizon. In April 2020, the IRS issued guidance outlining best practices and common mistakes in preparing transfer pricing documentation.

Later in the most recent quarterly filing, SentinelOne warned tax authorities may not agree its intercompany transactions are on arm’s-length terms which may result in significant back tax bills in excess of company reserves. Though the company has made similar boilerplate warnings in previous filings, skeptical investors might wonder if international expansion was really the impetus for the current U.S. and Israel transfer pricing discussions.
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